Parallel Importation Of Dietary Supplements

Intellectual property issues surround importation topic.

By Todd Harrison

One issue that has not been discussed very often is the parallel importation of dietary supplements into the United States. While this subject is rather complex, a general overview of the intellectual property issues related to parallel imports may be helpful. The main impediments to an importer attempting to import parallel products into the U.S. are intellectual property issues. Another issue that may impact the parallel importation of supplement products is the ability of manufacturers to limit the parallel importation of their products through contractual agreements. Indeed, many manufacturers attempt to limit this ability by specifically limiting the geographic area in which a particular distributor may distribute the manufacturer’s product. However, this will not be covered in this column.

The Tariff Act

The classic parallel importation scenario involves a domestic firm that has purchased the right to register and use an independent foreign firm’s trademark and to distribute the foreign firm’s products domestically. However, the foreign firm then attempts to import the product itself or sells the product to another party that attempts to import the product into the U.S. In either case, § 526 of the Tariff Act prohibits the importation of the parallel products unless the domestic firm is the parent or subsidiary of the foreign trademark owner or the companies are under common control.For example, Foreign Company X manufactures an herbal supplement in the U.K. This supplement is then exported to the U.S. as well as to other countries within the European Union. U.S. Company Y obtains the right to register the trademark of Company X’s herbal supplement and to be the supplement’s exclusive distributor in the U.S. If one of the supplement’s EU distributors de­cides to export the supplement to the U.S., § 526 of the Tariff Act would prohibit the supplement’s entry into the country unless Company Y is either the parent or subsidiary of Company X or the EU distributor or is otherwise under common control of either of these two companies.

Lanham Act

The highest risk with importation of genuine goods is the potential of trade dress liability. Trade dress liability does not merely hinge upon the appearance of the trademark on the product label. Rather, trade dress extends to the supplement’s color and shape of the pill, its configuration or other markings that distinguish it from other supplements. The issue under trade dress infringement is whether the product’s appearance is likely to cause confusion as to the source of the product. To determine whether there is trade dress infringement, the courts have created the “material differences” test.

The material differences test takes into consideration the following five factors: quality control procedures, composition, configuration, packaging and price (Société des Produits Néstlé, S.A. v. Casa Helvetia, Inc. 982 F.2d 633 (1st Cir. 1992)). If the content of the supplement’s labeling for the parallel product is the same as the U.S. product, it is unlikely that a court would find trade dress infringement. However, if the supplement’s label does not contain the FDA-mandated labeling information, then it would be vulnerable to being denied entry into the country on the basis of trade dress infringement.

Copyright Infringement

As a general matter, the unauthorized importation into the U.S. of copies purchased overseas is an infringement of the copyright owner’s exclusive right to distribute copies (See 17 U.S.C. § 602(a)). This right, however, only extends to the first sale of a product. The case of Quality King Distributors v, L’Anza Research Int’l, 523 U.S. 135 (1998) is illustrative of this point and is similar to the parallel importation of dietary supplements. In Quality King, the plaintiff—the manufacturer of high end beauty products—alleged that the defendant violated its right to exclusive distribution when the defendant imported the plaintiff’s product with its copyrighted label from Malta. There was no dispute as to the genuineness of the product or of its copyrighted label. Indeed, the plaintiff admitted that it had manufactured the product in the U.S. and placed the U.S. copyrighted label on the product prior to selling the product to one of its authorized distributors in London at a price considerably below the cost of the product in the U.S. The London distributor sold the product to a Maltese company that reimported the products into the U.S. The plaintiff instituted a copyright infringement action against the defendant in order to stop the importation of the products, which the Court ultimately rejected.

Specifically, the Court found that the plaintiff lost its right to exclusive distribution because the product sold to the London distributor contained the plaintiff’s copyrighted label. In other words, there was not actual copying of the label by the defendant. Thus, the outcome of this case may have been different if the plaintiff had sold the product without the U.S. label affixed to it because the Maltese importer would have had to copy the plaintiff’s label prior to importing the product back into the U.S. Under this scenario, the “first sale” defense would not have been available to the defendant and the court would have likely found in favor of the plaintiff because the product was never sold with the copyrighted U.S. label affixed to it.

Conclusion

In conclusion, as the use of nutritional products continues to grow worldwide, the issue of parallel imports may also grow. Indeed, often parallel products are available in a foreign country for significantly less than in the U.S. Thus, the issue of importing these products into the U.S. may start to become more common in the years to come, along with the necessity of understanding the laws that can act as a barrier to their importation.NW